paying tax on my pesion (lump sum)

mickofbrum

Firstly, i apologise in advance if this is a bit long and rambling, but i honestly don't know where else to go with this query, and its beginning to stress me out. here goes...
In May last year (2020-2021 tax year), I cashed in a works pension (I'm 55). I took a partial lump sum (I left £500 in the pot). Of the £47,458.67 originally , I received £33,160.72, which after tax, I believe to be correct. I didn't think that i would have to pay any more tax from the £33,160.72

For some reason, the tax office were informed that I received £35,595.01, and taxed me weekly, through my works pay at a tax code of "K15 W1". Whenever I queried it with the tax office, they assured me that this was correct, despite me informing them that I'd already paid £14,297.95 tax from the original £47,458.67. I thought nothing more about it until i received this year's tax code, and it's the same as last year, and also states on it, that i will receive my ANNUAL pension from my pension company. I phoned the tax office, and they said that according to the pension company, I will be receiving £35,595.01 annually. After much debate, I managed to convince them that I took a Lump sum last year, and won't be receiving any pension from them this year, so they have changed my tax code to 1263L (I think that is this year's code!). I also asked if the tax office had received from my pension company, the £14,300 tax taken from my pension, and the answer was No!, which is why I think I was taxed again.  My question is, what is my next step to move this forward? I want to find out where the £14300 went, get that to the HMRC, so that my tax from last year can be corrected, and i hopefully get a tax rebate. Please tell me if all this makes sense, and feel free to ask me any questions. Thanks in advance

mickofbrum

sorry about the spelling in the title!

dunstonh

The taxable element of the pension is paid through a payroll under PAYE.  So, a payment at the start of the tax year would assume that you are getting that amount every month of the tax year.  Its a quirk in the system.

 I also asked if the tax office had received from my pension company, the £14,300 tax taken from my pension, and the answer was No!

It would normally be paid within a month (there is a window for payroll systems to make payments).   However, the payment is on bulk basis and not individually attributed to you.   The payroll systems and disclosures to HMRC take care of that.   If HMRC had a problem with non payment, they would take it up with the provider. Not you.

My question is, what is my next step to move this forward? I want to find out where the £14300 went, get that to the HMRC, so that my tax from last year can be corrected, and i hopefully get a tax rebate. Please tell me if all this makes sense, and feel free to ask me any questions. 

You don't have to any chasing or worry about the potential tax issue. There almost certainly isn't a tax issue with the provider and year end stuff has only just been submitted. Just focus on your tax rebate.

mickofbrum

Thank you for your prompt response. As you could imagine, I thought that the £14300 was just out there somewhere, and i was being punished by HMRC for them not received it. Thanks again, and hopefully i get a rebate soon

xylophone

the tax office were informed that I received £35,595.01,

This is almost exactly the amount left in the pension after taking a  tax free 25% Pension Commencement Lump Sum.

Having taken the PCLS, anything then withdrawn from the pension was taxable.

You chose to  take your PCLS and then draw down   approx  £35,095?  

See  (re tax)

https://adviser.royallondon.com/technical-central/pensions/benefit-options/emergency-tax-and-lump-sum-withdrawals/

Have you had a look at your Personal Tax Account?

https://www.gov.uk/personal-tax-account


Have you yet received a P60 from the pension payer?

mickofbrum

xylophone said:

the tax office were informed that I received £35,595.01,

This is almost exactly the amount left in the pension after taking a  tax free 25% Pension Commencement Lump Sum.

Having taken the PCLS, anything then withdrawn from the pension was taxable.

You chose to  take your PCLS and then draw down   approx  £35,095?  

See  (re tax)

https://adviser.royallondon.com/technical-central/pensions/benefit-options/emergency-tax-and-lump-sum-withdrawals/See also


Have you had a look at your Personal Tax Account?

https://www.gov.uk/personal-tax-account


Have you yet received a P60 from the pension payer?

Please believe me when i ask the following questions that i'm not being deliberately obtuse, i just genuinely don't understand.
when you say "Having taken the PCLS, anything then withdrawn from the pension was taxable", thats what the £14300 that was originally deducted from my lump sum was for,wasn't it? i didn't realise that that I'd also pay £250 a month more tax than previous years.
No. i haven't looked at my personal tax account. what will that tell me?
No, I haven't received a P60 from my pension payer. should I have received one, or do i have to ask for one?

molerat

Taking that large a lump sum most likely changed the tax bracket you were in which meant that more tax would be due on your regular work income for the rest of the year.  During the coming months HMRC will reconcile all your income and tax paid and either refund you if due.

Your personal tax account will show you everything about your tax affairs and how HMRC have arrived at the figures they are using.

xylophone

I have corrected the link to RL in my post above.

Have a look at it -  it provides a very clear explanation with a worked example for the current year -  tax rates and bands for last year when you made your withdrawal are here https://www.gov.uk/government/publications/rates-and-allowances-income-tax/income-tax-rates-and-allowances-current-and-past

How does it work?

Under the emergency tax code the amount being withdrawn is treated as if it will continue to be paid each month. Although in many cases it will actually be a one-off payment – known as the 'Month 1' basis.

The provider will therefore apply 1/12th of the personal allowance (£12,570 in 2021/22) to the payment, and will assess the remaining payment against 1/12th of each of the income tax bands currently in force.

Emergency rate tax is calculated on the UK tax rate.

You have almost certainly overpaid tax but will only be able to determine your correct liability for the tax year  when you have added the taxable withdrawal from the pension to your other taxable income for the year.

The pension payer should provide you with a P60 within the next few weeks.

Check your Personal Tax Account.

TVAS

Why didn't you come here BEFORE you took benefits? Why did you not consider depleting the fund over 2 years rather than one if it meant you would still be in the 20% tax band?

P60s are usually issued by the end of May at the latest so wait until that date then chase the provider. When this arrives take a photocopy and send it to your tax office who deal with your employer. You can get the address from your employer HR department. You can also send a copy of the Provider letter sent to you that I have clarified immediately below. 
When you took payment the provider should have sent you a letter detailing the payment, and tax deducted which would have been at 20% 40% and 45%.

You have not told us the split between tax free cash and income so I assume circa 12k was tax free cash and circa 24k was income. The income element is added to your earned income so depending on that you were due to pay 40% tax. 
You are correct that the way HMRC calculates tax is to assume you are to receive 24k income each month in addition to your earned income so the letter from the provider should confirm if an element of the 24k income was tax at 45%. You are due a tax refund if your earnings do not exceed £150,001 as this is when 45% applies. 

Did your provider have your correct National Insurance number?